Summary
The request for a partial waiver in the RFS by Texas Gov. Perry is likely to be denied, largely due to a 25% reduction in corn prices caused by favorable weather in the Midwest. This corn crop, however, will be extremely difficult to get an accurate estimate on prior to getting it out of the field, so future price movements will probably bring the issue of the need for changes in ethanol policies, around again.
Analysis
Prior to this announcement, a partial RFS waiver for the state of Texas looked unlikely. Two weeks ago, a Deputy Sec. from the Dept of transportation testified to Congress that their department was strongly recommending that the waiver NOT be granted US ENERGY DEPARTMENT OFFICIAL FROWNS ON CUTTING BACK ETHANOL REQUIREMENTS
As background---the Gov. of Texas has requested that the requirement for his state be reduced from 9B gallons for the current year, to 4.5B gallons, due to high corn prices, which he says is hurting the livestock industry in his state more than corn-based biofuel is helping.
This picture gets a bit murky when you take into account donations from the owne'rs of Pilgrim's Pride (poultry producer) to Gov. Perry. Pilgrim's, according to testimony by company officials, purchased 5.2% of the corn consumed by all livestock in the US last year, and higher corn prices are taking a large bite out of their bottom line. TEXAS GOVERNOR TRYING TO SLASH ETHANOL PRODUCTION
However, favorable weather has improved the corn crop enough that prices on the CBOT for corn have fallen over $2.00 per bushel, more than 25%, since the beginning of July.
This drop would seem to be enough to allow the EPA to turn down the request from TX.
However, the damage from the flooding, late start, and water logged and ponded fields in IA and IL hasn't gone away--it's just a lot harder to see from the road when the corn is eight feet tall.
In addition, the yield estimate tours that will be hitting the road next month to get an early assessment on yields are likely to have a hard time getting good data, as fields are much more variable, with some spots that may throw out record yields, and other areas yielding half or less of those amounts. We may not get a good estimate on yields until the combines get into the field in Oct., and traders on the CBOT will be watching to see which way corn needs to go again at that point.
The RFS may be spared by good weather for the summer, but what happens when the crop comes in may be an entirely different story.
